The following selected account balances are from Creative Carpentry’s adjusted trial balance at March 31, 2021:
Accounts receivable ...................................... $184,000
Accounts payable .............................................. 60,000
Accumulated depreciation ............................. 115,000
Bank overdraft ................................................... 55,200
CPP payable ......................................................... 2,300
EI payable ............................................................. 1,750
HST payable ....................................................... 12,250
Income tax payable ........................................... 25,000

Interest payable ................................................... 8,000
Mortgage payable ........................................... 200,000
Merchandise inventory .................................. 120,600
Notes payable ................................................... 30,000
Prepaid expenses .................................................. 500
Unearned revenue .............................................. 9,385
Vacation pay payable ......................................... 1,200
Warranty liability ............................................... 12,500

Additional information:

1. On March 31, 2021, the unused operating line of credit is $25,000.

2. Redemption rewards, warranties, and gift cards are expected to be redeemed within one year. Unearned revenues relate to gift cards sold but not yet redeemed.

3. Of the mortgage, $50,000 is due each year.

4. Of the note payable, $5,000 is due at the end of each month.

Instructions

a. Prepare the current liabilities section of the balance sheet.

b. Calculate Creative’s current ratio and acid-test ratio.

c. Explain why the company did not report any cash as part of its current assets.

Explain to Peter, the owner of Creative Carpentry, why unearned gift card revenue is a current liability and how the liability will be settled.